Exhibit
10.7


 


AMENDMENT NUMBER 1 TO LOAN DOCUMENTS


 


THIS
AMENDMENT NUMBER 1 TO LOAN DOCUMENTS (this “First
Amendment”), is entered into as of August 20, 2008, by and among GVEC RESOURCE IV INC. (“Agent”), as Agent and as a
Lender, EMRISE CORPORATION,  a
Delaware corporation (“Parent”), and Parent’s Subsidiaries that are
signatories hereto (collectively with Parent, “Borrowers”).


 


W I T N E S S E T H


 


WHEREAS,
Borrowers, Agent and the Lenders named therein are parties to that certain
Credit Agreement, dated as of November 30, 2007 (as amended, restated,
supplemented, or modified from time to time, the “Credit Agreement”);


 


WHEREAS,
Borrowers wish to obtain additional working capital and to revise certain
financial covenants in the Credit Agreement;


 


WHEREAS, subject
to the satisfaction of the conditions set forth herein, the Lender Group is
willing to provide Borrowers with additional working capital through an
additional term loan under the Credit Agreement and to revise certain financial
covenants in the Credit Agreement;


 


NOW,
THEREFORE, for good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree to amend the Loan Documents as
follows:


 


1.             DEFINITIONS.  Capitalized terms used herein and not
otherwise defined herein shall have the meanings ascribed to them in the Credit
Agreement, as amended hereby.


 


2.             AMENDMENT
TO CREDIT AGREEMENT.


 


(a)           Schedule 1.1 of
the Credit Agreement is amended by the addition or amendment and restatement,
as applicable, of the following definitions:


 


“ACC” means Advanced Control Components, Inc., a New Jersey
corporation.


 


“ACC Acquisition” means the acquisition by EEC of the
outstanding capital stock of ACC and Custom Components pursuant to the terms of
the ACC Acquisition Documents.


 


“ACC Acquisition Documents” means that certain Stock Purchase
Agreement dated May 23, 2008 by and among EEC, ACC and the other parties
thereto, as amended by that certain Amendment No. 1 to Stock Purchase
Agreement dated August       , 2008, and the
other documents contemplated thereby.


 


“ACC Collateral Assignment” means that certain Collateral
Assignment of Rights under the Purchase Agreement, by EEC in favor of Agent,
and consented to by the shareholders of ACC, in form and substance satisfactory
to Agent.


 

















 


“ACC Lease” means the lease for ACC’s chief executive office
located in Eatontown, New Jersey.


 


“Commitment” means, with respect to each Lender, its Revolver
Commitment, its Term Loan A Commitment, its Term Loan B Commitment, its Term
Loan C Commitment, or its Total Commitment, as the context requires, and, with
respect to all Lenders, their Revolver Commitments, their Term Loan A
Commitments, their Term Loan B Commitments, their Term Loan C Commitments, or
their Total Commitments, as the context requires, in each case as such Dollar
amounts are set forth beside such Lender’s name under the applicable heading on
Schedule B-1 or in the Assignment and Acceptance pursuant to which such Lender
became a Lender hereunder, as such amounts may be reduced or increased from
time to time pursuant to assignments made in accordance with the provisions of Section 13.1.


 


“Custom Components” means Custom Components, Inc., a New
Jersey corporation.


 


“EEC”  means Emrise
Electronics Corporation, a New Jersey corporation.


 


“First Amendment” means that certain Amendment Number 1 to Loan
Documents, dated as of August 20, 2008, by and among Borrowers, Agent and
the Lenders party thereto.


 


“First Amendment Effective Date” means the date on which each of
the conditions precedent set forth in Section 4 of the First
Amendment has been satisfied.


 


“Loan” is deleted.


 


“Loans” mean one or more of the following, as the context
reasonably requires: the Advances, the Term Loan A, the Term Loan B and the
Term Loan C.


 


“Permitted Purchase Money Indebtedness” means, as of the date of
determination, Purchase Money Indebtedness incurred after the Closing Date in
the aggregate principal amount outstanding at any one time not in excess of the
following: (i) prior to the repayment in full of all Obligations owed by
Borrowers with respect to the Term C Loan, $1,500,000 and; (ii) thereafter,
$2,000,000.


 


“Term Loans” means, collectively, the Term Loan A, the Term Loan
B and the Term Loan C.


 


“Term Loan B Commitment” means, with respect to each Lender, its
Term Loan B Commitment, and, with respect to all Lenders, their Term Loan
B Commitments, in each case as such Dollar amounts are set forth beside such
Lender’s name under the applicable heading on Schedule B-1 or in the
Assignment and Acceptance pursuant to which such Lender became a Lender
hereunder, as such amounts may be reduced or increased from time to time
pursuant to assignments made in accordance with the provisions of Section 13.1.


 


“Term Loan C”  has the
meaning specified therefor in Section 2.2(f) of the First Amendment.


 

















 


“Term Loan C Amount” means, as of any date of determination, the
outstanding principal amount of Term Loan C.


 


“Term Loan C Commitment” means, with respect to each Lender, its
Term Loan C Commitment, and, with respect to all Lenders, their Term Loan
C Commitments, in each case as such Dollar amounts are set forth beside such
Lender’s name under the applicable heading on Schedule B-1.


 


“Term Loan C Lenders” means those Lenders designated as having a
Term Loan C Commitment on Schedule B-1.


 


“Term Loan Commitment” means a Term Loan A Commitment, a Term
Loan B Commitment or a Term Loan C Commitment.


 


“Term Loan Lender” means a Term Loan A Lender, a Term Loan B
Lender or a Term Loan C Lender.


 


“Total Commitment” means, with respect to each Lender, its Total
Commitment, and, with respect to all Lenders, their Total Commitments, in each
case as such Dollar amounts are set forth beside such Lender’s name under the
applicable heading on Schedule B-1 or in the Assignment and Acceptance
pursuant to which such Lender became a Lender hereunder, as such amounts may be
reduced or increased from time to time pursuant to assignments made in
accordance with the provisions of Section 13.1.


 


(b)           Section 2.1(a) of
the Credit Agreement is amended and restated as follows:


 


                “(a)         Making of Advances.  Subject to the terms and conditions of this
Agreement, on and after the Closing Date and prior to the Revolver Maturity
Date, each Lender agrees to make such portion of the Revolver Commitment to
Borrowers in an amount equal to such Lender’s Pro Rata Share of the then extant
Revolver Commitment (“Advances”); provided that Advances shall be made
in an aggregate amount not to exceed the lesser of: (y) the Maximum
Revolver Amount; and (z) the Borrowing Base.”


 


(c)           Section 2.2(c) of
the Credit Agreement is amended and restated as follows:


 


“(c)         All
amounts outstanding under the Term Loans shall constitute Obligations.  No portion of the Term Loans which is repaid
or prepaid may be reborrowed.  The Term
Loans shall be repaid as set forth in subsections (d), (e) and (g) below;
provided, however, that the outstanding unpaid principal balance and all
accrued and unpaid interest under the Term Loans shall be due and payable on
the date of termination of this Agreement, whether by its terms, by prepayment,
or by acceleration.”


 


(d)           Section 2.2(e) of
the Credit Agreement is amended and restated as follows:


 


“(e)         Subject
to subsection (c) above, the principal of Term Loan B shall be repaid in
installments as follows: commencing on June 1, 2009, and continuing on the
first day of each of the 17 consecutive months thereafter, equal installments
of $166,666.67.”


 

















 


(e)           Section 2.2 of the Credit Agreement is further amended
by the addition of subsections (f) and (g) as follows:


 


“(f)          Subject
to the terms and conditions of this Agreement, on the First Amendment Effective
Date, each Lender agrees (severally, not jointly or jointly and severally) to
make term loans (collectively, the ‘Term Loan C’) to Borrowers in an amount
equal to such Lender’s Pro Rata Share of the Term Loan C Commitment.


 


“(g)         Subject
to subsection (c) above, the principal of Term Loan C shall be repaid in
full on February 15, 2009.”


 


(f)            Section 2.3(a)(iii) of
the Credit Agreement is amended and restated as follows:


 


“(iii)        Borrowers
shall borrow pursuant to Section 2.2(a) an amount equal to the
Term Loan B Commitment in a single drawing, and Borrowers shall borrow pursuant
to Section 2.2(f) an amount equal to the Term Loan C
Commitment in a single drawing.”


 


(g)           The beginning paragraph
of Section 2.4(b)(i) of the Credit Agreement is amended and
restated as follows:


 


“(i)          Except
as otherwise provided with respect to Defaulting Lenders and except as
otherwise provided in the Loan Documents (including agreements between Agent
and individual Lenders), aggregate principal and interest payments shall be
apportioned ratably among the Revolver Lenders, the Term Loan A Lenders, the
Term Loan B Lenders and the Term Loan C Lenders, as applicable (according to the
unpaid principal balance of the Obligations to which such payments relate held
by each Lender), and payments of fees and expenses (other than fees or expenses
that are for Agent’s separate account, after giving effect to any agreements
between Agent and individual Lenders) shall be apportioned ratably among the
Revolver Lenders, the Term Loan A Lenders, the Term Loan B Lenders and the Term
Loan C Lenders, as applicable.”


 


(h)           The last sentence of Section 2.4(e) of
the Credit Agreement is deleted.


 


(i)            The first paragraph of
Section 2.6(a) of the Credit Agreement is amended and restated
as follows:


 


“(a)         Interest Rates. 
Except as provided in clause (c) below, (i) Term Loan A
and Term Loan B shall bear interest at a per annum rate equal to the Base
Rate plus 4.25 percentage points, (ii) Term Loan C shall bear
interest at a per annum rate equal to 14.0%, and (iii) all other
Obligations shall bear interest at a per annum rate equal to the Base Rate plus
1.25 percentage points.


 


(j)            Section 2.6(b) of
the Credit Agreement is amended and restated as follows:


 


“(b)         Default Rate.  Upon
the occurrence and during the continuation of an Event of Default (and at the
election of Agent or the Required Lenders), (i) Term Loan C shall bear
interest on the Daily Balance thereof at a per annum rate equal to 24.0% and (ii) all
other 


 

















 


Obligations shall bear interest on the Daily Balance thereof at a per
annum rate equal to 4 percentage points above the per annum rate otherwise
applicable hereunder.”


 


(k)           The heading to Section 3.2
of the Credit Agreement is amended to insert the following at the end of such
heading: “; Special Conditions Precedent to Term Loan C.”


 


(l)            Section 3.2 of
the Credit Agreement is amended to add a subsection (c) which shall read
in its entirety as follows:


 


“(c)         Subject to Section 3.1 and Section 3.2(a),
the obligation of the Term Loan C Lenders (or any member thereof) to make any
portion of the Term Loan C hereunder shall be subject to the following
conditions precedent:


 


(i)            the
representations and warranties contained in this Agreement or in the other Loan
Documents shall be true and correct in all material respects on and as of the
date of such extension of credit, as though made on and as of such date (except
to the extent that such representations and warranties relate solely to an
earlier date);


 


(ii)           no
Default or Event of Default shall have occurred and be continuing on the date
of such extension of credit, nor shall either result from the making thereof;


 


(iii)          no
injunction, writ, restraining order, or other order of any nature restricting
or prohibiting, directly or indirectly, the extending of such credit shall have
been issued and remain in force by any Governmental Authority against any
Borrower, Agent, any Lender or any of their Affiliates;


 


(iv)          no
Material Adverse Change shall have occurred;


 


(v)           Agent
shall have received the favorable legal opinion of the Borrowers’ counsel in
form and substance satisfactory to Agent; and


 


(vi)          Borrowers
shall have executed a promissory note in form and substance reasonably
satisfactory to Agent representing the Term C Loan.”


 


(m)          Section 3.6
of the Credit Agreement is further amended by the addition of subsections (vii) and
(viii) as follows:


 


“(vii)       Within
ten (10) Business Days of the First Amendment Effective Date,  Borrowers
shall have delivered to Agent the fully executed Reaffirmation and Consent, the
form of which is attached as Exhibit A to the First Amendment.


 


(viii)        Within
five (5) Business Days of the First Amendment Effective Date, Borrowers
shall have delivered to Agent certificates representing all of the outstanding
Stock of ACC and Custom Components owned by Borrowers, along with appropriate
Stock powers, all in form and substance reasonably acceptable to Agent.”


 





















 


(n)           Section 4.14(f) of
the Credit Agreement is amended by the addition of the following at the
beginning of the Section: “Except as set forth on Schedule 4.14(f),”.


 


(o)           A new subsection (i) to
Section 4.14 to the Credit Agreement is hereby added as follows:


 


“(i)     With respect to that certain
No Further Action Determination and Covenant Not to Sue letter dated July 28,
2008 (the “No Action Letter”) issued by the State of New Jersey, Department of
Environmental Protection (the “Department”) to ACC, (i) ACC did not
withhold any material information from the Department in connection with its
issuance of the No Action Letter; and (ii) the representations and
information that were provided by ACC to the Department were and remain true
and correct in all material respects.”


 


(p)           Section 4.23
of the Credit Agreement is amended by the addition of the following at the
beginning of the Section: “Except as set forth on Schedule 4.23,”.


 


(q)           The reference Schedule
4.28 contained in Section 4.27 of the Credit Agreement is
hereby amended to refer to Schedule 4.27.


 


(r)            The following is added
to the end of Section 5.11 of the Credit Agreement:


 


“Borrowers acknowledge that the ACC Lease is a material lease and a
Material Contract.”


 


(s)           A new Section 5.21
to the Credit Agreement is hereby added as follows:


 


“5.21       Additional Capital. 
On or prior to February 15, 2009, Borrowers shall provide evidence
to Agent that Borrowers shall have received no less than $5,000,000 in net
proceeds (after the payment of all underwriting commissions, investment banking
fees and other fees and expenses associated therewith) from either (i) the
sale of the Stock or assets of a significant subsidiary or division of
Borrowers or (ii) the sale of Borrowers’ Stock on terms acceptable to
Agent in its reasonable discretion.”


 


(t)            Section 6.14
of the Credit Agreement is amended and restated as follows:


 


“6.14       Use of Proceeds.  Use the proceeds of:  (a) the Advances for any purpose other
than (i) on the Closing Date, to pay transactional fees, costs, and
expenses incurred in connection with this Agreement, the other Loan Documents,
and the transactions contemplated hereby and thereby, (ii) as of the
Closing Date and thereafter, for working capital, and (iii) after the
Closing Date, consistent with the terms and conditions hereof, for Borrowers’
lawful and permitted purposes, (b) the Term Loan A for any purpose other
than, as of the Closing Date, to pay certain specified obligations of Borrower,
including the Existing Credit Facility, (c) the Term Loan B and Term Loan
C, to fund the payment of the purchase price for the ACC Acquisition.”


 


(u)           Section 6.16
of the Credit Agreement is amended and restated as follows:


 

















 


“6.16       Financial Covenants.


 


(a)           Minimum EBITDA.  Fail to achieve EBITDA, measured on a fiscal
quarter-end basis, of not less than the required amount set forth in the
following table for the applicable period set forth opposite thereto; provided,
however that any EBITDA in excess of the amounts required in any given
quarter may be used to satisfy future minimum EBITDA quarterly requirements and
provided, further, that such excess shall not be applied to any
quarter more than twelve (12) months following the end of the quarter as to
which such excess existed:


 


	
  Applicable Period

  	
   

  	
  Applicable Amount

  	
   

  
	
  For
  Borrowers’ fiscal quarter 

  ending in September 2008

  	
   

  	
  $

  	
  820,000

  	
   

  
	
  For
  Borrowers’ fiscal quarter 

  ending in December 2008

  	
   

  	
  $

  	
  1,578,000

  	
   

  
	
  For
  Borrowers’ fiscal quarter 

  ending in March 2009

  	
   

  	
  $

  	
  1,189,000

  	
   

  
	
  For
  Borrowers’ fiscal quarter 

  ending in June 2009

  	
   

  	
  $

  	
  1,334,000

  	
   

  
	
  For Borrowers’
  fiscal quarter 

  ending in September 2009

  	
   

  	
  $

  	
  1,411,000

  	
   

  
	
  For
  Borrowers’ fiscal quarter 

  ending in December 2009

  	
   

  	
  $

  	
  2,078,000

  	
   

  
	
  For
  Borrowers’ fiscal quarter 

  ending in March 2010

  	
   

  	
  $

  	
  2,227,000

  	
   

  
	
  For
  Borrowers’ fiscal quarter 

  ending in June 2010

  	
   

  	
  $

  	
  2,047,000

  	
   

  
	
  For
  Borrowers’ fiscal quarter 

  ending in September 2010

  	
   

  	
  $

  	
  2,121,000

  	
   

  
	
  For
  Borrowers’ fiscal quarter 

  ending in December 2010

  	
   

  	
  $

  	
  2,701,000

  	
   

  



 


(b)           Debt Service Coverage Ratio.  Fail to achieve a Debt Service
Coverage Ratio, measured quarterly at the end of each calendar quarter, of not
less than the amount set forth in the following table for the applicable period
set forth opposite thereto or 1.10:1.00, whichever is less; provided, however,
that any EBITDA in excess of the amounts required in any given quarter may be
used to satisfy future Debt Service Coverage Ratio requirements and provided,
further, that such excess shall not be applied to any quarter more than
twelve (12) months following the end of the quarter as to which such excess
existed:


 

















 


	
  Applicable Period

  	
   

  	
  Applicable Amount

  	
   

  
	
  For
  Borrowers’ fiscal quarter 

  ending in September 2008

  	
   

  	
  0.57:1.00

  	
   

  
	
  For
  Borrowers’ fiscal quarter 

  ending in December 2008

  	
   

  	
  1.11:1.00

  	
   

  
	
  For
  Borrowers’ fiscal quarter 

  ending in March 2009

  	
   

  	
  0.19:1.00

  	
   

  
	
  For Borrowers’
  fiscal quarter 

  ending in June 2009

  	
   

  	
  0.80:1.00

  	
   

  
	
  For
  Borrowers’ fiscal quarter 

  ending in September 2009

  	
   

  	
  0.67:1.00

  	
   

  
	
  For
  Borrowers’ fiscal quarter 

  ending in December 2009

  	
   

  	
  0.94:1.00

  	
   

  
	
  For
  Borrowers’ fiscal quarter 

  ending in March 2010

  	
   

  	
  1.02:1.00

  	
   

  
	
  For
  Borrowers’ fiscal quarter 

  ending in June 2010

  	
   

  	
  1.01:1.00

  	
   

  
	
  For
  Borrowers’ fiscal quarter 

  ending in September 2010

  	
   

  	
  1.13:1.00

  	
   

  
	
  For
  Borrowers’ fiscal quarter 

  ending in December 2010

  	
   

  	
  0.13:1.00

  	
   

  



 


(c)           Maximum Leverage Ratio.  Fail to achieve a Leverage Ratio, measured
quarterly at the end of each calendar quarter, of not greater than the amount
set forth in the following table for the applicable period set forth opposite
thereto:


 


	
  Applicable Period

  	
   

  	
  Applicable Amount

  	
   

  
	
  For
  Borrowers’ fiscal quarter 

  ending in September 2008

  	
   

  	
  2.19:1.00

  	
   

  
	
  For
  Borrowers’ fiscal quarter 

  ending in December 2008

  	
   

  	
  2.30:1.00

  	
   

  
	
  For
  Borrowers’ fiscal quarter 

  ending in March 2009

  	
   

  	
  2.11:1.00

  	
   

  
	
  For
  Borrowers’ fiscal quarter 

  ending in June 2009

  	
   

  	
  2.07:1.00

  	
   

  
	
  For
  Borrowers’ fiscal quarter 

  ending in September 2009

  	
   

  	
  2.01:1.00

  	
   

  
	
  For
  Borrowers’ fiscal quarter 

  ending in December 2009

  	
   

  	
  1.93:1.00

  	
   

  
	
  For
  Borrowers’ fiscal quarter 

  ending in March 2010

  	
   

  	
  1.87:1.00

  	
   

  
	
  For
  Borrowers’ fiscal quarter 

  ending in June 2010

  	
   

  	
  1.80:1.00

  	
   

  
	
  For
  Borrowers’ fiscal quarter 

  ending in September 2010

  	
   

  	
  1.72:1.00

  	
   

  
	
  For
  Borrowers’ fiscal quarter 

  ending in December 2010

  	
   

  	
  1.11:1.00

  	
   

  
							



 

















 


(d)           Capital Expenditures.  Make
Capital Expenditures (in the aggregate for the Borrowers and their
Subsidiaries) in any fiscal year in excess of the following: (i) for the
fiscal year ending December 31, 2008, $1,000,000  and
(ii) in each fiscal year thereafter, $1,500,000; provided, however,
that during the period commencing January 1, 2008 until all Obligations
owed by Borrowers with respect to the Term C Loan have been satisfied in full,
Borrowers and their Subsidiaries, in the aggregate, shall not make Capital
Expenditures in excess of $1,500,000 in the aggregate.”


 


(v)           A new Section 6.22
to the Credit Agreement is hereby added as follows:


 


“6.22       Deferred Purchase Price.  Pay any Acceleration Event Amount of the
Deferred Purchase Price (both as defined in the ACC Acquisition Documents)
unless, on or prior to the ninetieth (90th) day following the payment by
Borrowers of any portion of the Deferred Purchase Price, Borrowers shall have
provided evidence reasonably satisfactory to Agent that Borrowers have received
from the issuance of Stock or Subordinated Debt, net proceeds (after the
payment of all underwriting commissions, investment banking fees and other fees
and expenses associated therewith) equal to the amount of any and all payments
of any Acceleration Event Amounts of the Deferred Purchase Price paid by
Borrowers plus any increase in the principal amount of the Subordinated
Contingent Notes caused by such acceleration. 
Lender shall not unreasonably withhold its consent to the issuance of
any Subordinated Debt issued in order to comply with the provisions of this Section 6.22.”


 


(w)          Section 1 of Exhibit A-1
is amended and restated as follows:


 


“1.           In
accordance with the terms and conditions of Section 13 of the
Credit Agreement, the Assignor hereby sells and assigns to the Assignee, and
the Assignee hereby purchases and assumes from the Assignor, that interest in and
to the Assignor’s rights and obligations under the Loan Documents as of the
date hereof with respect to the Obligations owing to the Assignor, and Assignor’s
portion of the Revolver Commitment and the Term Loan B Commitment, all as
specified on Annex I.”


 


(x)            The Annex 1 to Exhibit A-1
to the Credit Agreement is amended and restated as set forth in Annex 1
attached hereto.


 


(y)           Schedule B-1 to
the Credit Agreement is amended and restated as set forth in Schedule B-1
attached hereto.


 





















 


3.             AMENDMENT
TO SECURITY AGREEMENT.  In
the first recital paragraph on the first page of the Security Agreement,
the reference to “$23,000,000” is hereby replaced by “$26,000,000.”


 


4.             CONDITIONS
PRECEDENT TO THIS FIRST AMENDMENT.  The satisfaction of each of the following
shall constitute conditions precedent to the effectiveness of this First
Amendment and each and every provision hereof:


 


(a)                 The
representations and warranties in the Credit Agreement and the other Loan
Documents shall be true and correct in all material respects on and as of the
First Amendment Effective Date, as though made on such date (except to the
extent that such representations and warranties relate solely to an earlier
date);


 


(b)                No
Default or Event of Default shall have occurred and be continuing on the date
hereof or as of the First Amendment Effective Date;


 


(c)                 No
injunction, writ, restraining order, or other order of any nature prohibiting,
directly or indirectly, the consummation of the transactions contemplated
herein shall have been issued and remain in force by any Governmental Authority
against any Borrower, Agent, any Lender or any of their Affiliates;


 


(d)                No
Material Adverse Change shall have occurred;


 


(e)                 On
or prior to the First Amendment Effective Date, Borrowers shall have paid Private
Equity Management Group, Inc. (“PEMG”) an advisory fee of cash of $225,000
to compensate PEMG for its ongoing advice relating to the ACC Acquisition and
Borrowers’ overall financing and capitalization structure.  The advisory fee shall be due and payable in
full on the First Amendment Effective Date and non-refundable when paid;


 


(f)                 Borrowers
shall have executed and delivered this First Amendment to Agent by no later
than August 20, 2008;


 


(g)                Borrowers
shall have executed and delivered to Agent an amended and restated Warrant
Agreement in form and substance satisfactory to Agent and providing for an
exercise price of $0.53 per share for 1,454,545 of the shares represented by
the Warrant Agreement and an exercise price of $0.815 per share for the remaining
1,454,545 shares represented by the Warrant Agreement; and


 


(h)           With
respect to the ACC Acquisition:


 


(i)            Borrowers shall have
delivered to Agent a true and correct copy of the ACC Acquisition Documents,
all of which shall be in form and substance reasonably satisfactory to Agent;


 


(ii)           Borrowers shall have
delivered to Agent a certification by an officer of ECC that the ACC
Acquisition has been consummated pursuant to the ACC Acquisition Documents
(other than the funding of the purchase price to be paid thereunder);


 





















 


(iii)          Borrowers shall have
delivered to Agent the ACC Collateral Assignment, executed by all parties
thereto;


 


(iv)          Borrower shall have
delivered to Agent certificates of the secretary of Parent, an authorized
officer of ACC and an authorized officer of Parent certifying that the ACC
Acquisition has been (A) approved by the Board of Directors or similar
governing body of each of Parent and ACC or (B) agreed to by the requisite
owners of the Stock of each of Parent and ACC, as required under applicable law
or by the Governing Documents of each of Parent and ACC;


 


(v)           no Default or Event of
Default shall have occurred and be continuing or would result after giving
effect to the ACC Acquisition;


 


(vi)          the ACC Acquisition
shall have been undertaken in accordance with all applicable requirements of
law;


 


(vii)         if the consideration to
be paid in connection with the ACC Acquisition includes an “earn out,” the ACC
Acquisition Documents include a maximum dollar amount that may be payable
pursuant to the “earn out” provisions;


 


(viii)        Parent shall have
delivered to Agent a pro forma
balance sheet and income statements of Borrowers (after giving effect to the
proposed ACC Acquisition) as of the then most recent fiscal quarter ended for
which a financial statement has been delivered in accordance with Section 5.3,
together with a certificate of Parent, in form and substance reasonably
satisfactory to Agent, demonstrating that upon the consummation of the ACC
Acquisition, Borrowers will be in compliance with the financial covenants
contained in Section 6.16, such evidence of compliance to be in
form and substance reasonably satisfactory to Agent;


 


(ix)           Parent shall have
delivered to Agent financial statements of ACC, (A) in the same form and
substance as those required to be delivered by Borrowers under Section 5.3,
to the extent such are available, or (B) if unavailable, in the form
relied upon by Borrowers in connection with the proposed ACC Acquisition, in
each case for the previous three (3) fiscal years, or if less than three (3) years
are existing, for such shorter period of time as does exist;


 


(x)            Agent shall have
received lien searches or other evidence reasonably satisfactory to Agent that
the assets of ACC which are being purchased by Borrowers in connection with the
ACC Acquisition are (or will be at the closing of the proposed ACC Acquisition)
free and clear of all Liens, except Permitted Liens;


 


(xi)           the aggregate
consideration to be paid in connection with the proposed ACC Acquisition shall
not exceed an amount mutually agreed upon by Borrowers and the Lender Group,
taking into consideration the totality of all information relating to ACC,
which agreement by the Lender Group shall not be unreasonably withheld


 


(xii)          ACC and Custom
Components shall have executed and delivered to Agent a supplement to the
Security Agreement in the form of Annex 1 to the Security Agreement;


 





















 


(xiii)         EEC shall have executed
the Pledged Interests Addendum in the form attached as Exhibit C to
the Security Agreement; and


 


(xiv)        Agent shall have received
such other documents and instruments as Agent in its reasonable discretion may
require.


 


5.             NEW
BORROWERS.


 


(a)           Effective upon the
occurrence of the First Amendment Effective Date and the Borrowing of the Term
Loan C, each of ACC and Custom Components, by their signature below, (i) agrees
that it becomes a “Borrower” under the Credit Agreement and the other Loan
Documents with the same force and effect as if originally named therein as a “Borrower”;
(ii) agrees that it is bound by all of the terms and provisions of the
Credit Agreement and the other Loan Documents applicable to it as a “Borrower”
thereunder; (iii) represents and warrants that the representations and
warranties made by it as a “Borrower” thereunder are true and correct on and as
of the date hereof; and (iv) agrees that each reference to a “Borrower” in
the Credit Agreement and the other Loan Documents shall be deemed to include
each of ACC and Custom Components.


 


(b)           Each of ACC and Custom
Components represents and warrants to Agent and the Lender Group that this
First Amendment has been duly executed and delivered by each of ACC and Custom
Components and constitutes its legal, valid and binding obligation, enforceable
against it in accordance with its terms, except as enforceability thereof may
be limited by bankruptcy, insolvency, reorganization, fraudulent transfer,
moratorium or other similar laws affecting creditors’ rights generally and
general principles of equity (regardless of whether such enforceability is
considered in a proceeding at law or in equity).


 


6.             COMPLIANCE
WITH SECTION 5.18 OF THE CREDIT AGREEMENT.  Agent acknowledges that, effective upon the
occurrence of the First Amendment Effective Date and Borrowing of the Term Loan
C, Borrowers shall have complied with the provisions of Section 5.18 of
the Credit Agreement with respect to the Subsidiaries being acquired by
Borrowers pursuant to the ACC Acquisition.


 


7.             DISCLOSURE
SCHEDULES.  Effective upon
the occurrence of the First Amendment Effective Date and Borrowing of the Term
Loan C, (i) Schedules D-1, 4.5, 4.7(a), 4.7(b), 4.7(c), 4.8(c), 4.13,
4.14(f), 4.15, 4.16, 4.17, 4.23 and 4.27 to the Credit Agreement are hereby
updated with the information provided on the similarly numbered Schedules
attached to this First Amendment; and (ii) Schedules 1 and 4 to the
Security Agreement as updated hereby shall be deemed incorporated by reference
into the Security Agreement.


 


8.             CONTROL
AGREEMENTS.  Within thirty
(30) days after the First Amendment Effective Date, all Deposit Accounts and
Securities Accounts set forth on Schedule 4.17 to the First Amendment shall be
subject to a Control Agreement.


 


9.             CONSTRUCTION.  THIS FIRST AMENDMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA APPLICABLE
TO CONTRACTS MADE AND TO BE PERFORMED IN THE STATE OF CALIFORNIA.


 





















 


10.           ENTIRE
AMENDMENT; EFFECT OF FIRST AMENDMENT.  This First Amendment, and the terms and
provisions hereof, constitutes the entire agreement among the parties
pertaining to the subject matter hereof and supersedes any and all prior or
contemporaneous amendments relating to the subject matter hereof.  Except as expressly set forth in this First
Amendment, the Credit Agreement and other Loan Documents shall remain unchanged
and in full force and effect.  To the
extent any terms or provisions of this First Amendment conflict with those of
the Credit Agreement or other Loan Documents, the terms and provisions of this
First Amendment shall control.  This First
Amendment is a Loan Document.


 


11.           COUNTERPARTS;
TELEFACSIMILE EXECUTION. 
This First Amendment may be executed in any number of counterparts, all
of which taken together shall constitute one and the same instrument and any of
the parties hereto may execute this First Amendment by signing any such
counterpart.  Delivery of an executed
counterpart of this First Amendment by telefacsimile shall be equally as
effective as delivery of an original executed counterpart of this First
Amendment.  Any party delivering an
executed counterpart of this First Amendment by telefacsimile also shall
deliver an original executed counterpart of this First Amendment, but the
failure to deliver an original executed counterpart shall not affect the
validity, enforceability, and binding effect of this First Amendment.


 


12.           BINDING ON ACC AND CUSTOM
COMPONENTS.  The parties
acknowledge and agree that this Amendment shall be binding and effective with
respect to ACC and Custom Components only upon the consummation of the ACC
Acquisition.


 


13.           MISCELLANEOUS.


 


(a)           Upon the effectiveness
of this First Amendment, each reference in the Credit Agreement to “this
Agreement,” “hereunder,” “herein,” “hereof” or words
of like import referring to the Credit Agreement shall mean and refer to the
Credit Agreement as amended by this First Amendment.


 


(b)           Upon the effectiveness
of this First Amendment, each reference in the Loan Documents to the “Credit
Agreement,” “thereunder,” “therein,” “thereof” or
words of like import referring to the Credit Agreement shall mean and refer to
the Credit Agreement as amended by this First Amendment.


 


[signatures on next page]


 

















 


IN WITNESS
WHEREOF, the parties have caused this First Amendment to be executed and
delivered on the date first written above.


 


	
  EMRISE CORPORATION  

  	
   

  	
  EMRISE ELECTRONICS CORPORATION  

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Carmine T. Oliva

  	
   

  	
  By:

  	
  /s/ Carmine T. Oliva

  
	
  Title:

  	
  Chief Executive Officer

  	
   

  	
  Title:

  	
  Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  CXS LARUS CORPORATION

  	
   

  	
  RO ASSOCIATES INCORPORATED

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Carmine T. Oliva

  	
   

  	
  By:

  	
  /s/ Carmine T. Oliva

  
	
  Title:

  	
  Chief Executive Officer

  	
   

  	
  Title:

  	
  Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  CUSTOM COMPONENTS, INC.  

  	
   

  	
  ADVANCED CONTROL COMPONENTS, 

  INC.  

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Carmine T. Oliva

  	
   

  	
  By:

  	
  /s/ Carmine T. Oliva

  
	
  Title:

  	
  Chief Executive Officer

  	
   

  	
  Title:

  	
  Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  GVEC RESOURCE IV INC., as Agent and a

  Lender 

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Robert Anderson

  
	
   

  	
   

  	
  Title:

  	
  President, Chief Operating Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Wilbur Quon

  
	
   

  	
   

  	
  Title:

  	
  Chief Financial Officer

  
							



 

















 


ANNEX FOR ASSIGNMENT AND ACCEPTANCE


 


ANNEX I


 


	
  1.

  	
  Borrowers: EMRISE CORPORATION and each of its Subsidiaries party to
  the Credit Agreement described below.

  
	
   

  	
   

  
	
   

  	
  2.

  	
  Name and Date of Credit Agreement:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Credit Agreement, dated as of November 30, 2007, by and among Borrowers,
  the lenders from time to time a party thereto (the “Lenders”), and GVEC
  RESOURCE IV, INC., as the arranger and administrative agent for the Lenders

  
	
   

  	
   

  	
   

  
	
   

  	
  3.

  	
  Date of Assignment Agreement:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.

  	
  Amounts:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  a.             Assigned
  Amount of Revolver Commitment

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
  b.             Assigned
  Amount of Term Loan A

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
  c.             Assigned
  Amount of Term Loan B

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
  d.             Assigned
  Amount of Term Loan B Commitment

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
  e.             Assigned
  Amount of Term Loan C

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.

  	
  Settlement Date:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.

  	
  Purchase Price

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.

  	
  Notice and Payment Instructions, etc.

  	
   

  	
   

  	
   

  



 


 


	
  Assignee:

  	
   

  	
  Assignor:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  



 

















 


Schedule B-1


 


Commitments


 


	
  Lender

  	
   

  	
  Loan Commitment

  	
   

  	
  Total Commitment

  	
   

  
	
  Revolver Lenders:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  GVEC Resource IV Inc.

  	
   

  	
  $

  	
  7,000,000

  	
   

  	
  $

  	
  7,000,000

  	
   

  
	
  Term Loan A Lenders:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  GVEC Resource IV Inc.

  	
   

  	
  $

  	
  6,000,000

  	
   

  	
  $

  	
  6,000,000

  	
   

  
	
  Term Loan B Lenders:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  GVEC Resource IV Inc.

  	
   

  	
  $

  	
  10,000,000

  	
   

  	
  $

  	
  10,000,000

  	
   

  
	
  Term Loan C Lenders:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  GVEC Resource IV Inc.

  	
   

  	
  $

  	
  3,000,000

  	
   

  	
  $

  	
  3,000,000

  	
   

  
	
  All Lenders:

  	
   

  	
  $

  	
  26,000,000

  	
   

  	
  $

  	
  26,000,000

  	
   

  



 

















 


EXHIBIT A


 


REAFFIRMATION AND CONSENT


 


All
capitalized terms used herein but not otherwise defined herein shall have the
meanings ascribed to them in that certain Credit Agreement, dated as of November 30,
2007 (as amended, restated, supplemented or otherwise modified, the “Credit
Agreement”), by and among GVEC RESOURCE IV, INC.,
as the arranger and  administrative agent
for the Lenders (in such capacity, together with its successors and assigns in
such capacity, “Agent”), the Lenders named therein, EMRISE
CORPORATION, a Delaware corporation (“Parent”), and Parent’s
Subsidiaries party thereto (collectively with Parent, “Borrowers”) or in
that certain Amendment Number 1 to Loan Documents, dated as of  August 20,
2008 (the “First Amendment”), among Borrowers, Agent and the
Lenders.  Each of the undersigned hereby (a) represents
and warrants to Agent that the execution, delivery, and performance of this
Reaffirmation and Consent are within its powers, have been duly authorized by
all necessary action, and are not in contravention of any law, rule, or
regulation, or any order, judgment, decree, writ, injunction, or award of any
arbitrator, court, or Governmental Authority, or of the terms of its charter or
bylaws, or of any contract or undertaking to which it is a party or by which
any of its properties may be bound or affected; (b) consents to the
transactions contemplated by the First Amendment; (c) acknowledges and
reaffirms its obligations owing to the Lender Group under any Loan Documents to
which it is a party; and (d) agrees that each of the Loan Documents to
which it is a party is and shall remain in full force and effect.  Although the undersigned has been informed of
the matters set forth herein and has acknowledged and agreed to same, it
understands that the Lender Group has no obligations to inform it of such
matters in the future or to seek its acknowledgment or agreement to future
amendments, and nothing herein shall create such a duty.  Delivery of an executed counterpart of this
Reaffirmation and Consent by telefacsimile shall be equally as effective as
delivery of an original executed counterpart of this Reaffirmation and
Consent.  Any party delivering an
executed counterpart of this Reaffirmation and Consent by telefacsimile also
shall deliver an original executed counterpart of this Reaffirmation and
Consent but the failure to deliver an original executed counterpart shall not
affect the validity, enforceability, and binding effect of this Reaffirmation
and Consent.  This Reaffirmation and
Consent shall be governed by the laws of the State of California.


 

















 


IN WITNESS
WHEREOF, the undersigned have caused this Reaffirmation and Consent to be
executed as of the date of the First Amendment.


 


	
   

  	
   

  	
  Guarantors:

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  XCEL JAPAN, LTD.  

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  EMRISE ELECTRONICS LTD.  

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  CXR ANDERSON JACOBSON SAS

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Subordinated Creditors:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Warren P. Yost, as Co-Trustee Under Declaration 

  dated March 9, 1998

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Gail A Yost, as Co-Trustee Under Declaration dated 

  March 9, 1998

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Noel McDermott, as trustee of the Noel C. 

  McDermott Revocable Living Trust dated 

  December 18, 1995